STICKING TO A RELIABLE METHOD FOR ACQUIRING AND INTEGRATING BUSINESS IS THE KEY TO SUCCESS

They say there’s more than one way to skin a cat, but when it comes to buying a business, it’s best to follow a tried-and-true formula. That’s the advice of Craig Steeneck, CFO of Pinnacle Foods, a branded foods company that has gobbled up four multimillion-dollar household names —Birds Eye and Wish-Bone among them— in the past five years. “We have an acquisition manual that we call our ‘playbook,’ and every time we purchase and integrate a new business into our own, we use it.”

Mr. Steeneck spoke on “Valuation and Integration —Keys to Successful Buy-side M&A” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Roots Steakhouse in Morristown, NJ. CFOs from select New Jersey–area companies attended the invitation-only dinner.

Mr. Steeneck said his company has been “highly acquisitive” over the past several years, and “by sticking to an MO that has consistently worked for us, we continue to outpace our competitors in the industry.” He shared his recipe for success with dinner attendees, going through his “playbook” page by page, from beginning to end.

“When a business goes on the market, the first thing you need to do is determine how much it’s worth and what you should be paying for it.” Mr. Steeneck said he relies heavily on support from outside resources to come up with that valuation, and highly recommends this tactic. “I work closely with external bankers and people in the industry to be aware of what’s being sold and for how much. This is one of the most important things I do.”

He also advised completing a five-year forecast, including cash flow, to come up to a discounted cash flow. And then benchmark what that five-year free cash flow translates to against other deals that have occurred in the marketplace in order to help determine what to pay for the business. He cautioned attendees to keep in mind that, these days, companies don’t come cheap. “Acquisitions are more expensive now than they’ve been for quite some time. In fact, they’re at an all-time high, particularly in the food industry.”

Searching for Synergies

The only way to justify paying a premium to acquire a business, Mr. Steeneck noted, is with cost synergies, which translates to the elimination of duplicative Sales, General, and Administrative Costs, or SG&A costs; in other words, the purchase reduces overhead expenses and head count. And don’t overlook the scale benefit, he added, that is achieved from the supply chain. “Adding the weight of the new company’s product to my truck, for instance, allows me to reduce my overall shipping costs.”

Once a price is negotiated and both sides are ready to shake on it, the buyer should do a hefty amount of due diligence before signing on the dotted line. “Kick the tires,” Mr. Steeneck advised. “Understand exactly what you’re getting.”

When a deal is finally in place, it’s time to set a plan for integration—and it must include a timeline. “Do whatever you can to execute that timeline and put the newly purchased company on your platform as quickly as possible” after the acquisition. He said, “If you leave it dangling out there on its own and separate, you don’t get the cost savings as soon.” Plus, he pointed out, “You could allow for some bad practices that the company might have employed in the past to continue.” Also, bringing products together in cross-promotional efforts (e.g. bagels and spread) will help to drive revenue.

Again, Mr. Steeneck advised seeking “outside help” to organize and structure the integration, in an attempt to “stay on course and integrate as quickly as possible” in order to realize the cost savings. “It’s very difficult to get people to focus on their day job while trying to do all of this integration work” on the acquisition, he said. “Flex up your resources with consultants who will help you meet your very fast and aggressive timeline.” Otherwise, he cautioned, “something will go afoul with either the base business or the newly acquired one.”

The View from the Top

Mr. Steeneck spends about 25 percent of his time on M&A-related activities, including sourcing possible acquisition opportunities, and performing due diligence on integration efforts. “One of the most important things I do as CFO is look for acquisitions. I keep my ear to the ground as I go through the rest of my day-to-day, making sure I’m always aware of what’s happening in the industry in terms of available assets and when they’re coming up for sale.”

He said this is something that is very much managed “at the top of the house” at Pinnacle Foods, noting that the CEO joins him in such endeavors. “We are always in the market and prospecting, while keeping everyone else focused on their daily workload.”

David Chambers, Vice President and CFO of Jaguar Land Rover North America, attended the dinner and in an interview afterwards expressed surprise over how involved Mr. Steeneck and his CEO are in the process. “Most companies likely employ an M&A team to identify opportunities, and then bring them forward to the CFO for review, and finally up to the CEO and the Board.” He thinks the Pinnacle way makes better sense. “They do it together, and so there is alignment from the beginning, which makes for a more efficient process.”

Mr. Chambers noted that “All CFOs look for benefits from an acquisition, but realizing them is not always as easy.” The way Mr. Steeneck operates, “he has this intimate knowledge with a hands-on approach, so that leads to a higher level of success.”

In an interview, Ralf Hermkens, Executive Consultant/Principal at Hermkens Consulting, LLC, called Mr. Steeneck’s playbook “invaluable.” As someone who has successfully completed multiple acquisitions and integrations in his own career, Mr. Hermkens added that Mr. Steeneck’s best practices are “easily transferable to other sectors.”

Mr. Steeneck agreed, adding, “You have to be disciplined and regimented in order to stick to it and make it work.” And that holds true, he said, no matter where you work.

A COMPANY IN HYPER-GROWTH PRESENTS ITS CFO WITH CHALLENGES – AND EXHILARATION

-BY JULIE BARKER-

Anthony Conte, Chief Financial Officer of EPAM Systems, Inc., a company of over 18,000 employees in 25 countries, believes that the CFO needs to bring a resource management perspective to the overall business, no matter what that business might be.

Conte came to this realization through “a lot of blocking and tackling” in a period of high growth. At EPAM, a provider of product development and software engineering solutions, he was performing the 21st-century CFO role in hyperdrive, integrating acquisitions and developing planning tools. “What this requires,” he says, “is a high degree of flexibility and innovation to continue to create a financial organization that supports the business.”

What EPAM engineers do, Conte explains, is to envision a more productive, cost-efficient way for companies to deliver services and products, then align multiple technologies to make it happen. For example, the engineering team created the ability for viewers of a leading cable and satellite television channel to watch episodes of their favorite shows across various devices — laptops, tablets, smartphones, and TVs — by streaming the shows from the website. EPAM’s redesign for the site loads fast, even when fans click through to multiple pages; and it is always real-time, featuring whatever show is currently on the air.

Conte knows that to deliver on his role as CFO, he has to understand the technology that is driving both the financial and operating metrics of EPAM. He believes his success is “directly tied to my ability to interact with the head of our IT operation and the head of our delivery organization.”

Loving Numbers

Back when Conte was in high school, he had a teacher who spoke of accounting as “the backbone of the business world. He viewed it as the language of business,” says Conte, “and that resonated with me.” Conte remembers talking to his dad about this notion that accounting provided stability for companies, and not only that, a career path leading to continued employment and success.

Certainly that part of the vision his teacher created has been true for him. He received his degree in accounting from Northeastern University in Boston, started his career at Coopers & Lybrand, obtained his CPA, worked at John Hancock Financial, then at McGraw-Hill, and in that company worked his way up to divisional controller. He took a corporate controller job at EPAM in 2006.

But numbers alone don’t provide a financial executive with enough information. Business decisions are increasingly complex; numbers need context. Conte says that as his company seeks to grow from $1 billion to $2 billion in revenue, the organization has built various internal tools for such things as research planning and production systems. “Now we’re incorporating these things into our financial systems, creating data warehousing and business intelligence (BI) applications,” he says. “It creates a holistic picture that we use to plan for the future.”

If, for example, the company needs Java programmers who are not working on other time-sensitive projects, finding them is easy through a global employee system, created by EPAM, that provides a real-time, detailed profile of every employee and project in the company. Also, by analyzing the data, the company might find an ideal location for opening a new development center or recruiting local talent. The system, which incorporates elements of social media, “allows us to get some good metrics and analytics on where the people with the right skill set and background are currently sitting,” Conte says.

These challenges are not at all what he thought he’d be concerned with back when he took all those accounting classes; but now “those types of metrics help me drive forward resourcing, which is our No. 1 metric,” Conte says.

Conte’s company is on the front lines of digital integration, facing the enormous opportunities (and challenges) brought on by the current digital disruption facing every industry in the world. He has made it his mission to get out of his financial silo so that the decisions in which he participates are truly able to drive the business forward. “I can talk at a high level and give [potential clients] an elevator pitch,” he says. “But at the end of the day, the customer doesn’t want to see the CFO in a sales role. The customer needs to talk to the technical people.”

Acquisitions and Growth

In the past three years, even as Newtown, PA– based EPAM has completed eight acquisitions, organic growth has been over 20 percent per year, landing the company in the eighth spot on the 2016 Forbes list of the 25 Fastest Growing Public Tech Companies. As Conte says, the company is in hyper-growth mode. “What this requires,” he says, “is a high degree of flexibility and innovation to continue to create a financial organization that supports the business.”

“Your forecasting is going to be impacted most. By the time you finish the forecast, odds are, something is going to have happened that changes that forecast.” He adds: “When I go back three years and look at the eight acquisitions, each one of them has turned us in a slightly different direction than what we would have previously thought.”

Conte must keep close ties with his senior-level peers. By staying tight with business leaders throughout the organization, including IT, he keeps himself aware of decisions and potential changes, and keeps all those contacts in the loop too, “making sure that everything we do is structured in a way to be flexible and move as the business moves.”

Conte continues to plan and forecast, since decisions based on those plans will absolutely affect the future of the company and its employees. But after a decade here he knows no plan is set in stone. He might need to change it tomorrow.

THE CFO OF ONE OF THE COUNTRY’S LARGEST PRIVATE FAMILY-OWNED COMPANIES BELIEVES IT’S TIME TO FOCUS ON INVESTING IN ACQUISITIONS

-BY JULIE BARKER-

Acquisitions are tightly woven into Joe Ritzel’s professional bio. They are career high points, he feels, representing both the biggest challenges and the greatest successes. The Senior VP Finance and CFO of Day & Zimmermann (D&Z), a Philadelphia-based, century-old, family-owned company that provides construction & engineering, staffing, and defense solutions for leading corporations and governments around the world, made his mark navigating a series of acquisitions. Ritzel now oversees a finance team that files “over 50,000 W2s a year,” though many of those are for contract employees. Ranked #179 on the 2015 “Forbes” America’s Largest Private Companies list, better measures of D&Z’s size are the number of worldwide locations —more than 150—and revenues, which were $2.7 billion in 2015. In 2001 when the previous CFO retired and Ritzel took over the job, revenues were $1.2 billion. “So it’s been a good period of rapid growth,” says Ritzel. Two acquisitions in that period were game changers in terms of size and complexity: a 2006 purchase of Atlantic Services, Inc., which consolidated D&Z’s position in the power services market (D&Z has a footprint at 70 percent of the U.S. nuclear fleet); and the 2015 acquisition of SOC, which D&Z co-owned since 2008, in the government services area which added about $350 million in revenue.

After a flurry of acquisitions around 2006 and 2007, Day & Zimmermann concentrated on weathering the recession and then organic growth. And now, says Ritzel, “we’re in a solid position in all four of our businesses (engineering construction & maintenance; workforce solutions; government services & security; and manufacturing ammunition for the U.S. government and its allies). “So it’s the right time to invest.”

Getting Ready to Acquire

It appears that Ritzel isn’t the only CFO with those thoughts. According to a report by EY last October, the acquisition appetite is at a six-year high, driven by the need to expand at a faster rate than organic growth can provide. Markets are changing, whole industries are being disrupted, and sector boundaries are blurring, said the report. The long-term prospects for growth look positive, another factor spurring the interest of senior executives in 19 industry sectors, 59 percent of whom expected to pursue acquisitions in the 12 months following that survey, which took place in August and September of last year.

Ritzel says seeking out “the right strategic fit and the right cultural fit” makes the process of acquisition more of a puzzle than it would seem on the surface. You can buy a business that complements your main business, which is how D&Z got into power maintenance in the 1980s.

Or you can buy a competitor, which D&Z did in 1999. The company acquired, Mason & Hanger, was actually in three of the four businesses that D&Z was in; everything but staffing. For that reason alone, says Ritzel, “it was a great deal and the largest in company history.” Ritzel was on the front lines of the purchase and integration as VP and Controller for the then Government Services group.

In this 18-month period, he oversaw that integration, while at the same time the company experienced a changeover in the CEO’s office as Hal Yoh replaced his father and the third generation took over the reins of the family business. At the same time, with the installation of its first ERP system, SAP, the company hit some bumps in the road. “We were having trouble processing invoices. It was a nail-biter of a time, and we had just done the biggest acquisition we had ever done,” says Ritzel.

He adds the capper: “Put those three things together and that’s when I became CFO,” stepping into the top finance job at D&Z on January 1, 2001.

Handling the Challenges

The integration of the Mason & Hanger acquisition went pretty smoothly. Having been involved from the start, Ritzel says, he worked to “get all of the synergies out of it.” The startup of SAP was more challenging. Some of D&Z’s billing is complex, Ritzel admits. Government invoices, for example, have to be precise, “down into what they call CLIN (contract line item number) level billing.” He convened teams together to focus on “what had to happen,” not just to straighten out the invoicing problem, but to deliver the reports that were needed by the Business Unit management.

He says the hard work was worthwhile. “This truly enabled us to change processes and get people more focused. It was more than just putting in an ERP. By 2003 we got everything streamlined and operating more efficiently, and that really jumped us to the next level.”

Dividing His Time

Ritzel has a document that he hands out to all the folks in Finance. The document outlines in clear color blocks the scope and potential value of the six critical areas that financial work is involved with, from transaction processing to regulatory reporting to management reporting, to decision support and analysis to planning and forecasting to performance/value/risk management. “The key is that in order to accomplish the priorities in all of those buckets, financial leaders need to work in four different roles. And you need to know what percent of your time should be put toward each role: Operator, Steward, Strategist, Catalyst.”

Back in 1983 when Ritzel joined the company as Controller for a newly acquired subsidiary, he reported up through operations and not through the CFO. But that changed. Financial team members now report directly through the Finance chain and have a dotted line to operations. Being a good business partner requires finance executives to perform all four of the above roles regularly, even Operator, which involves problem-solving, customer focus, and building effective teams. “Getting the percentages proper in terms of how much of those roles are devoted to those six critical areas is what it’s all about.”

Says Ritzel, “I try to make sure I am spending more time each year as a strategist and catalyst as the finance team continues to get better. Generally, the higher up in the organization a finance leader goes, the percent of time in these two categories should increase.”

With his interest in seeking out acquisition targets, it’s a given that Ritzel will be spending more and more time as strategist and catalyst.